Mining News

Surveys Show That Bad Regulations and Taxes Repel Mining Investment: But is Carson City Paying Attention?

Two recently released studies provide rankings of the investment climate for mining companies in various countries, states and provinces. One rank is by the consulting firm Behre Dolbear (BD) and it primarily focuses on “where not to invest” based on seven political factors related to stability, regulations and tax policy in 25 countries. BD has been publishing its study since 1999 and the rankings are based on an internal survey of BD’s consulting staff based in 12 countries across the world.

The second study, conducted by the Fraser Institute (FI), a non-profit Canadian think tank based in Vancouver, has been published since 1997 (full disclosure: the author is a Senior Fellow at FI but was not involved in the ranking study). The FI ranking looks at 17 factors in 93 jurisdictions across the world which includes individual states or provinces for Canada, the U.S., Australia, and Argentina. The factors used in the FI rankings overlap those in the BD study but has more detail by including additional factors such as labor force conditions, security of land and mineral claims status, etc. An additional difference between the two rankings is that the survey used in the FI ranking was sent out to approximately 4,100 exploration, development and mining related companies around the world of which 18 percent responded.

The results of both studies are fairly consistent, as one would expect. BD ranks the U.S. as the sixth best place to invest in mineral projects after Australia, Canada, Chile, Brazil, and Mexico. More notably, the U.S. was just ahead of Columbia, Botswana, and Peru, which doesn’t sound like a very good neighborhood. BD does note that Nevada along with several other states are exceptions in the U.S. when it comes to permitting issues, but that is not much consolation when the focus of the ranking is on political stability, rule of law, security of property rights, etc. Note that the U.S. is grouped with third world countries, and the permitting process in Nevada to open a mine can take a decade.

The FI broadest ranking of “Policy Potential” is much more favorable for Nevada ranking it eighth out of 93 jurisdictions, behind New Brunswick, Finland, Alberta, Wyoming, Quebec, Saskatchewan, and Sweden, and just ahead of four Canadian provinces and territories and Ireland. In contrast, Nevada’s neighbor to the west, California, ranks in the bottom half of jurisdictions which makes sense if you are at all familiar with recent attempts to mine in the “Golden State.” (Maybe California should change its nickname to the “Regulatory State.”)

On other more specific indices in the FI ranking Nevada does worse on some and slightly better on others. On “uncertainty concerning the administration, interpretation, and enforcement of concerning existing regulations” Nevada ranks seventh best but other measures such as “legal processes that are fair, transparent, non-corrupt, timely, and efficiently administered” Nevada ranks sixteenth. Both of these rankings are relatively good, but together they suggest consistent application of overbearing regulations. So I’m not sure the rankings, taken together, are really all that good. I also suspect that timeliness and “efficiently administered” are much the same issue and the main problem.

To the extent that rankings like BD’s and FI’s matter is limited to their impact on decisions made on where to allocate mining capital – where to make investments. Nevada’s economy has benefitted from tens of billions of dollars invested in mining exploration and development by, for the most part, foreign investors, most of whom are Canadian. The BD and FI rankings suggest that these investors have plenty of places to send their money and they are paying attention to what happens in obscure places like Burkina Faso, Botswana, and Carson City. The implication is that if Nevada acts like a banana republic with respect its policies toward mining, it will be noticed around the world, and it will matter in terms of where mining investment occurs in the future.

The short-sighted view of mining is that orebodies are immovable objects that can be taxed with impunity. While it is true that mineral deposits are immobile, mining capital is highly mobile. And without that capital, the pile of rocks and dirt you want to call a mineral deposit is just a pile of rocks and dirt.

This is not to suggest that policies coming out of Carson City – most notably tax policies – are likely to be fatal for Nevada’s mining industry. But, removing the protection of mining in the state’s constitution will certainly be noticed in international circles. What has been portrayed as “special protection” of mining in the state’s constitution is not really “special” at all; it is merely a guarantee of equal protection of mining property relative to other property. If the Nevada legislature will not respect the right of equal protection, it will surely be noticed in the rankings.